A finance company has sued Hutto, claiming the city needs to return a $15 million loan it received from the company to buy land and pay for other costs linked to the Perfect Game baseball project.
Preston Hollow Capital of Dallas filed the federal lawsuit on Sept. 22, saying the city had defaulted on the loan after buying land with the money and then decided the financing company didn’t have the right to foreclose on the land because the loan agreement was invalid.
The city attorney said the loan was void due to the city’s own mistakes, the lawsuit said. It said those mistakes included that the city had not properly posted the loan agreement for consideration according to the requirements of the Texas Open Meetings Act.
It also said the mistakes the city said it had made included never having the loan agreement reviewed or approved by the Texas attorney general’s office.
Dottie Palumbo, the city attorney, said at the City Council meeting Thursday night that the city was “looking forward” to presenting its side of the story in court.
She said the city has a disagreement with Preston Hollow about state law in connection to the loan. She said she would not provide further comment.
Preston Hollow also sued Cottonwood Development Corporation, a government entity that Hutto formed to handle money and bonds for the Perfect Game project.
Perfect Game is a baseball scouting company that announced in April 2019 that it would move its national headquarters from Iowa to Hutto.
The estimated $800 million project, the largest economic project in the city’s history, is expected to include Hutto’s first indoor sports and events center, designed to seat 13,000. It is also expected to have a convention hotel, 24 baseball fields, and office, commercial, medical and residential space.
Preston Hollow Capital has had a “longstanding historically constructive relationship with the city of Hutto,” said Greg May, the managing director of corporate development for the company, in an email on Thursday.
“We made this loan in good faith, and it’s deeply troubling that the city and the CDC (Cottonwood Development Corporation) took our money and then disavowed their agreements with us,” May said.
“We believe the matter can be resolved amicably once the atmosphere of turmoil and dysfunction among city officials and their advisors subsides,” he said. “In the meantime, we have taken a necessary step to enforce our rights and rectify a surprising and unfortunate injustice.”
According to the lawsuit, Preston Hollow lent the city and the Cottonwood Development Corporation $15 million in February. Cottonwood then spent $11.6 million of the loan to buy two tracts of land for the Perfect Game project and $600,000 to settle a lawsuit with Wolverine, a former developer of the project, the lawsuit said.
It said Preston Hollow also put $2.5 million of the loan into escrow.
Preston Hollow sent the Cottonwood Development Corporation a notice on April 30 that it had defaulted on the loan by not meeting certain conditions, the lawsuit said. Those conditions included failing to enter into an agreement providing that 75% to 100% of the city’s portion of the property taxes on land related to the Perfect Game project would be used to finance costs related to the project.
Preston Hollow then demanded that the loan be returned but the city refused to do it, the lawsuit said. Preston Hollow then sent the city a notice in May that it planned to foreclose on July 7 on the land the Cottonwood Corporation had bought with the loan.
“Defendants took the incredible position that the Loan Agreements were void and voidable due to the City’s own failures, and therefore PHC (Preston Hollow Capital – whose money Defendants admittedly used to pay for the real property at issue – had no right to foreclose,” the lawsuit said.
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